BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 1456| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- UNFINISHED BUSINESS Bill No: SB 1456 Author: Galgiani (D) Amended: 8/18/16 Vote: 21 SENATE ENVIRONMENTAL QUALITY COMMITTEE: 7-0, 4/20/16 AYES: Wieckowski, Gaines, Bates, Hill, Jackson, Leno, Pavley SENATE APPROPRIATIONS COMMITTEE: 7-0, 5/27/16 AYES: Lara, Bates, Beall, Hill, McGuire, Mendoza, Nielsen SENATE FLOOR: 38-0, 5/31/16 AYES: Allen, Anderson, Bates, Beall, Berryhill, Block, Cannella, De León, Fuller, Gaines, Galgiani, Glazer, Hall, Hancock, Hernandez, Hertzberg, Hill, Hueso, Huff, Jackson, Lara, Leno, Leyva, Liu, McGuire, Mendoza, Mitchell, Monning, Moorlach, Morrell, Nguyen, Nielsen, Pan, Pavley, Roth, Stone, Vidak, Wolk NO VOTE RECORDED: Runner, Wieckowski ASSEMBLY FLOOR: 80-0, 8/23/16 - See last page for vote SUBJECT: Safe Drinking Water State Revolving Fund Law of 1997: water systems: financing SOURCE: California Water Association DIGEST: This bill allows costs incurred by a community water system or not-for-profit noncommunity water system for planning and preliminary engineering studies, project design, and construction to be funded under the Safe Drinking Water State Revolving Fund (SDWSRF). SB 1456 Page 2 Assembly Amendments authorize a grant or principal forgiveness to a community water system or not-for-profit noncommunity water system that serves a disadvantaged community and limits the principal forgiveness to capital improvements made by the water system serving disadvantaged communities with fewer than 3,300 service connections. ANALYSIS: Existing law: 1)Requires, under the California Safe Drinking Water Act (SDWA), the State Water Resources Control Board (SWRCB) to regulate drinking water and enforce the federal Safe Drinking Water Act and other regulations. 2)Establishes SDWSRF, and moneys in the fund are continuously appropriated to SWRCB for the provision of grants and revolving fund loans to provide for the design and construction of projects for public water systems that will enable suppliers to meet safe drinking water standards. a) For community public water systems and not-for-profit noncommunity public water systems, allows planning and preliminary engineering studies, project design, and construction costs incurred by those public water systems to be funded by loans and other repayable financing. b) Additionally allows, if those public water systems are owned by public agencies or not-for-profit water companies, those specified costs to be funded by grants, principal forgiveness, or a combination of grants and loans or other financial assistance. c) Deems a public agency or private not-for-profit water SB 1456 Page 3 company serving a severely disadvantaged community with fewer than 200 service connections and that owns a small community water system or nontransient community water system to have no ability to repay any financing for a project serving the severely disadvantaged community. 3)Requires the California Public Utilities Commission (CPUC) to establish rates for investor-owned utilities water service providers. This bill: 1)Authorizes the above-described capital and design costs to be funded by loans or other repayable financing, grants, principal forgiveness, or a combination of grants and loans or other financial assistance, regardless of whether the water system is a community public water system, a not-for-profit noncommunity public water system, or is owned by a public agency or private not-for-profit investor-owned utility water service provider. By expanding the use of moneys in a continuously appropriated fund, this bill will make an appropriation. 2)Specifies that any public water system serving a severely disadvantaged community with fewer than 3,300 service connections does not have the ability to repay any financing for a project serving the severely disadvantaged community. Background 1)SDWSRF. Congress established the SDWSRF as part of the 1996 Safe Drinking Water Act amendments to better enable public water systems to comply with national primary drinking water standards and to protect public health. The SDWSRF provides financial assistance in the form of capitalization grants to states to provide low-interest loans and other assistance to SB 1456 Page 4 public water systems. In order to receive these funds, states must provide a state match equal to 20% of the federal capitalization grants and must create a drinking water state revolving fund program for public water system infrastructure needs and other drinking water-related activities. In response, California established the SDWSRF through SB 1307 (Costa, Chapter 734, Statutes of 1997) to help fund the state's drinking water needs. SDWSRF provides low-interest preconstruction and construction loans or grants to drinking water systems. These loans or grants cover capital improvements that increase public health and compliance with drinking water regulations. Financial incentives including reduced interest rates, extended financing terms, principal forgiveness and grants targeted toward small disadvantaged communities with financial hardship. SWRCB division of drinking water evaluates financial hardship and ability to repay based on affordability criteria including population, median household income, and rates as a percent of median household income. 2)What are investor-owned water utilities? Investor-owned water companies are water service providers that own regulated water and wastewater utilities, partner with municipalities to form public-private partnerships, or operate and maintain water and wastewater systems as contracted services providers. These companies may be privately owned or publicly traded. In California, these water service providers who own and SB 1456 Page 5 operate utilities are regulated by CPUC. CPUC establishes rates and terms of service. In setting rates, CPUC reviews the company's costs, audits system needs, conducts public hearings for customers, holds formal evidentiary hearings adjudicated by administrative law judges, and issues a final decision authorizing the utility to establish approved rates and terms of service. Rates are set to collect an authorized revenue requirement to compensate for just and reasonable expenses for operating and maintaining a water system and costs related to capital expenditure, including an authorized rate of return on the underappreciated capital investment (rate base), depreciation expense, property and income taxes. There are 108 investor-owned water utilities under the CPUC's jurisdiction providing water service to about 16% of California's residents. Approximately 95% of that total is served by nine large water utilities each serving more than 10,000 connections. Annual water and wastewater revenues under the CPUC's regulation total $1.4 billion. CPUC regulates 70 Class D water utilities that have less than 500 connections. Of these 70, 55 have less than 200 service connections. There are also eight districts of Class A and B multi-district utilities that have less than 200 connections. CPUC's regulation of water utilities does not consider whether or not the utility is serving severely disadvantaged communities. As such, CPUC does not maintain information to know if any of the 55 Class D water utilities or the eight districts of the Class A and B multi-district utilities serve severely disadvantaged communities. The after-tax authorized rate of return on a utility's rate SB 1456 Page 6 base is between 10.2% and 11.2% for Class D water utilities. Comments Need for the bill: According to the author, water utilities regulated by the CPUC are eligible for water-related state and federal funding programs, like the Prop.1 Water Bond, as long as the funding is used for projects to benefit their customers. CPUC-regulated water utilities are eligible for loans from the SDWSRF. This program, under SWRCB, assists water systems in financing the cost of drinking water infrastructure projects needed to achieve or maintain compliance with SDWA requirements. CPUC-regulated water utilities are not eligible for loan forgiveness under this statute. SB 1456 expands the eligibility for loan forgiveness for capital improvements to all water systems serving severely disadvantaged communities with fewer than 200 service connections. FISCAL EFFECT: Appropriation: Yes Fiscal Com.:YesLocal: No According to the Assembly Appropriations Committee: 1)Unknown, potentially significant, cost pressures on the SDWSRF resulting from eligibility for grants and loan forgiveness for an increased number of water systems. 2)Minor, absorbable SWRCB. SUPPORT: (Unable to verify at time of writing) California Water Association (source) SB 1456 Page 7 OPPOSITION: (Unable to verify at time of writing) None received ASSEMBLY FLOOR: 80-0, 8/23/16 AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Rendon Prepared by:Rachel Machi Wagoner / E.Q. / (916) 651-4108 8/23/16 20:26:30 **** END ****